Cirrus Logic to Buy Rival Wolfson for $467M

BROOKLYN, N.Y. — Fabless analog and DSP vendor Cirrus Logic Inc. is on its way to becoming an audio chip powerhouse with a deal to acquire rival Wolfson Microelectronics plc for $467 million in cash and debt.

The purchase will give Cirrus Logic, based in Austin, Tex., software expertise and several key components to fill out its product portfolio, including MEMS microphones. The Scottish chip vendor also provides Cirrus Logic, which has been a long supplier to Apple and the iOS platform, with the ability to participate in the Android OS camp where Cirrus Logic management admits Wolfson has had more penetration.

"They've advanced their offering to be a pretty complete audio DSP with integrated mixed-signal audio CODEC functionality," said James Rhode, Cirrus Logic's president and CEO, in a conference call with analysts following the announcement of the acquisition on April 29.

"We certainly have devices that are not too dissimilar from that in our roadmap, but we've focused on some pretty different opportunities out there. I would say that, relative to the Android ecosystem, they're certainly further along, and so that's a positive."

Apple accounts for approximately 77% of Cirrus Logic's revenue, which reached $714.3 million in 2013, according to Stifel Nicolaus analyst Tore Svanberg. The deal will diversify Cirrus Logic's customer base, adding to its roster Samsung, which currently accounts for roughly a third of Wolfson's revenue, according to Svanberg's note to investors. Wolfson's audio chips are in many of Samsung's products, including its Galaxy range of smartphones (including LTE models), tablet computers, digital still cameras, televisions, and personal computers.

Cirrus Logic is expected to garner less of its revenue from Apple when the transaction is completed. The smartphone maker, however, will still represent about 65% of its revenue, according to Svanberg's estimates.

Meanwhile, Wolfson has had its share of struggles recently as it continues to feel the effects of customer inventory overhangs from last year's faster-than-anticipated transition from 3G to 4G (LTE) smartphones. First-quarter revenue plummeted to $28.8 million from $48.1 million a year ago. However, it has several opportunities for growth, including its partnership with MediaTek, which offers Wolfson's HD audio products as a pre-integrated option on its mobile LTE reference platform. Wolfson expects to capitalize on MediaTek's strong position in China's smartphone and tablet market.

In addition, Cirrus Logic management believes the combined company will have the scale to leverage opportunities in the low-end of the smartphone market with smaller manufacturers looking for ways to differentiate their products. And it also intends to tap an emerging class of other devices that can benefit from voice interface products, including automotive, tablets, and wearables.

"The smartphone market is the biggest opportunity that we've got. We think there's a growing opportunity to expand a really compelling voice interface further down the product line or further into lower-end models," said CEO Rhode.

Cirrus Logic expects to shave nearly $12 million in costs, mainly through a 7 to 10% headcount reduction in its corporate sales and operational support staff, within 12 months following the completion of the acquisition, which is expected to close in the second half of 2014.